Rich Dad, Poor Dad author’s mantra comes true: savers are losers

Twenty years ago the author behind the best-selling Rich Dad, Poor Dad books said ‘savers are losers’. His claim has come true.

Rich Dad Poor Dad author Robert Kiyosaki Picture: Darren Leigh Roberts

Robert Kiyosaki, the man behind the best-selling Rich Dad, Poor Dad books, created a lot of publicity with his provocative slogan “savers are losers”, but 20 years after the investment guru first hit the headlines, his claim has come true.

Don Hamson, managing director of the Plato Investment Management, says: “For the first time in almost two decades, if your savings are in overnight cash, one-year term deposits or even bonds, the interest generated on those savings is less than the rate of inflation.

“Unfortunately, that slogan has come to pass here — savers are losers.”

What’s more, savers are set to be losers for some time yet with little doubt among the majority of economists that official interest rates — now at 0.75 per cent — will fall again later in the year, despite the pause in monetary policy indicated by the Reserve Bank this week.

Hamson points out that savers are now losing if they depend on income from any of the three traditional “risk-free” options — at-call cash accounts, one-year term deposits and even 10-year Australian government bonds.

Kiyosaki made his headline-grabbing claims when rates were much higher than they are now. In fact, they were more than 6 per cent when the American author argued that money should always be put to work on active investments rather than passively sitting in savings.

However, the issue now for Australian savers is that inflation — on any measure, headline or underlying — is considerably above saving rates. The headline rate is 1.8 per cent. So, it is not that savers are lagging behind active investors, savers are lagging behind inflation itself — at the end of each year their buying power is falling.

As Hamson explains: “For retirees especially, it is a very difficult issue but the truth of the matter is that if you don’t take on some investing risk in these circumstances, you will be drawing down directly on your savings … there is no choice.

“Good diversification can help reduce the amount of risk taken.”

Hamson’s Plato Income Maximiser fund, which finds high-yielding share investments, has consistently returned a yield higher than the average for the market.

For all investors, the Australian sharemarket remains a yield haven as local dividends are still among the highest in the world — our dividend yield has dropped from near 5 per cent to about 4 per cent as the wider market lifted by 20 per cent in terms of price over last year, but at that level our dividends are still twice as high as major markets such as the US.

On top of the hefty dividend yield, the survival of the franked dividend system after a threatened attack by the ALP last year means that for many savers the “fully franked” yield on shares is 6 per cent and can be higher again on big-yielding stocks such as the leading miners, banks and infrastructure stocks.

For the most conservative investors, the problem with Kiyosaki’s mantra is that at least bank savings are government guaranteed. In the wider sharemarket, no such guarantees exist.